Financial decision-making for millennials

Financial decision-making for millennials

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Many people think of Millennials as children or young adults. But the much-maligned generation is most often defined as people born after 1980 up until around 1998, and that means the oldest Millennials are now 37 or 38 years old.

Many Millennials have adult portfolios to go with all of their other adult holdings such as homes and cars and the adjacent mortgages and loans. They have important decisions to make regarding what they are going to buy and what they are going to invest in, and advisors need to know how they are making those decisions.

That’s where Spectrem’s study Millennial and Generation X Investors: Attracting the Next Generations of Wealth comes in. It explains how Millennials approach their financial decision-making and compares them to the Gen X generation, those citizens born in between the Baby Boomers and the Millennials.

“Advisors have rightfully been concentrating on Baby Boomers for many years now as they enter the stage of life where they are concerned about retirement, estate issues and wealth transfer,’’ said Spectrem president George H. Walper Jr. “But the time has come to consider those investors who are in the rising income stage of their economic lives. Millennials and Gen Xers are making key decisions and advisors would be wise to participate in that process.”

The study shows that among Millennials who are married or living with a partner, 71 percent make financial decisions jointly. That’s a huge percentage compared to Gen Xers (63 percent), and Baby Boomers (54 percent). For advisors, it is important to note that Millennials are not working alone, and advisors would be wise to invite spouses and partners into the investment conversations in order to get the best read on what decisions are likely to be made.

And Millennials are not just talking to their spouse or partner. They are more likely to talk to their parents, friends, siblings and co-workers than are older investors. Obviously, older investors are less likely to talk to their parents about financial decisions, but the difference in conversations with friends and siblings is stark.

Asked to place their helpfulness in making financial decisions on a 0-to-100 scale, Millennials rated their friends at 48.03, while Gen Xers had friends at 37.30 and Baby Boomers had friends at just 25.05. Likewise, with a sibling, Millennials rated them at 41.78 while Gen Xers rated their siblings at 31.50 and Baby Boomers had their siblings at 22.31.

In conversations with Millennials, advisors must find out who they are talking to and, more importantly, who they are listening to in making financial decisions.

So are Millennials listening to advisors? The Spectrem study shows that 70 percent of Millennials use financial advisors but do so at a sparing rate. Only 19 percent of Millennials consider themselves to be advisor-assisted (discuss almost all decisions with an advisor) or advisor-dependent (allowing the advisor to make a majority of investment decisions), as opposed to 27 percent of Gen Xers and 38 percent of Baby Boomers.

Top Takeaways for Advisors

Advisors need to ask their Millennial and Gen X clients who they are listening to in making financial decisions. This can be done without being insulting; some friends, family or co-workers are able to provide meaningful advice. But advisors want to attempt to provide their own brand of financial and investment advice and must display their level of knowledge which likely goes beyond that of the client’s close associates.

This point cannot be stressed too much: young investors become older investors over time. Advisors do not know when a Millennial investor will find himself or herself with additional income to invest, or when they will become more willing to turn over assets to their advisor. Cultivating a relationship of understanding and relating to the risk tolerance of the client will make you more attractive as a source of information when the Millennial is ready to change their investing habits and behaviors.